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Possibility of a Second Peak-Oil Related Recession Looms

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Tom Therramus's picture
Researcher, Self-employed

Tom Therramus writes on instability in the oil markets and its impacts on economics, politics and climate change. He believes:  1. Peak Oil is real; 2. Climate Change is real;  3. And...

  • Member since 2021
  • 16 items added with 4,401 views
  • Mar 24, 2022

Based on a report by Moodys some experts are warning that pulling Russian oil off the market could result in a global economic downturn.

The report also states that
• "Every recession in the past 50 years has been preceded by an oil price spike.

The report was covered in a nice piece by TSVETANA PARASKOVA today at Interestingly, no citation was provided for this last statement coupling recessions to oil price spikes. It was apparently assumed to be a matter of conventional wisdom.

The tight relationship between recessions and spikes in oil price variance over the last 50 years was first reported in my article of 2009 at the (,  see figure from this 2009 article linked to this post). The relationship was subsequently highlighted by the UCSD economist James Hamilton in 2010 ( 

It has been the frequent habit of professional economists and economic commentators to associate recessions with anything but doings in the energy markets. The best example of this is the financial crisis of 2008, where causality was assigned by most experts to the “sub-prime” mortgage crisis. This, despite the fact that like all recessions of the last 50 years, the 2008 crisis had been immediately preceded by a major spike in oil price volatility, 

I have argued for the last decade that the recession of 2008-2009 was actually our 1st Peak-Oil recession - see my interview at James Kunstler's podcast

I agree with Moody’s that a recession is possible, and perhaps even likely. However, I disagree on their assignment of potential causality. As always, that which is most immediate and tangible appears to be posited as the "prime mover” i.e., the Russian war in Ukraine and the response of the West to this aggression. 

However, as I posted last year (, spikes in oil price variance were predicted and duly occurred in November 2021, well before Russia invaded Ukraine. Second, the up and downs of the energy market since the initial phases of the invasion have actually shown little relationship to oil market fundamentals. Finally, and most importantly, the current phase of volatility in oil price falls right in line with a 3-4 year cycle that I have been harping on about ad nauseam since 2009.

Based on my objective assessment of the data, I would therefore posit that the major cause of any pending economic down-turn will again be Peak-Oil. Thus, if it does occurs this will be our second Peak-Oil related recession.

Matt Chester's picture
Matt Chester on Mar 24, 2022

Second, the up and downs of the energy market since the initial phases of the invasion have actually shown little relationship to oil market fundamentals

What I take from this is: politicians will still feel the need to make token actions (especially because it's midterms this year), and the long-term realities of a need to shift from oil because this will happen again will get a bit buried. I do hope I'm wrong about that though

Tom Therramus's picture
Tom Therramus on Mar 25, 2022

Hi Matt, Could not agree with you more on the imperative to transition. There is a curious and willful blindness to the need to get on with what is necessary all the same. I guess it's hard to break from the comfortable and highly amenitied world that we've been able to build by multiplying our efforts many times by fossil fuels. But all good things must come to an end. As Jim Kunstler says, "there may be a time out coming for humans - and it may last sometime".

Julian Silk's picture
Julian Silk on Mar 25, 2022

The past 50 years may not be the full story, because monetary policy was substantially tightened, except for 1973-1974, which involved actual physical shortages via rationing (alternate-day purchases), in every other case. In 1946-1948, challenges similar to the ones faced now with Russia occurred, and while there was very substantial inflation, it ended and there was no recession. So there is more to the story. The public pressure on the Federal Reserve to tighten is very substantial, and at least Loretta Mester (now at the Cleveland Federal Reserve, at the Philadelphia Federal Reserve for a long time before that) has indicated willingness to agree. But other events may intervene.

Tom Therramus's picture
Tom Therramus on Mar 25, 2022

Hi Julian, Tx for your comment. I agree that there is so much more to the story. This being said, in my view it is a matter of first getting straight which is the cart and which is horse. My own starting principle is that "fossil fuels are the economy", and indeed, fossil fuels are the sole necessary and sufficient explanation of our present civilization. Everything else that differentiates from this is secondary to, and downstream of, these energy inputs. Moreover, it is my assumption that societal responses (e.g. Fed policy) can be ultimately be explained by variance in rates of flow of this energy within our civilizational structures. In the chart reproduced from my 2009 that I attached to my post I concentrated on a 50 year span. My purpose was to demonstrate the repeated instances of coupling between variance in energy flow during this period (as assayed by identifying periods of sudden change in oil price) and economic recessions and stock market crashes. One could no doubt look prior to the 1960s and see this same phenomenon. However, my approach was guided by the same as those underpinning statistics - i.e. you don't need to sample the whole population to observe the relationship. My point was to hammer home the tightness and repetitiveness of this relationship over time. And it is a matter of historical record illustrated by the chart that nearly every recession and stock market crash of the last 50 years has been preceded by a significant uptick in variance of oil prices - a fact overlooked by most so-called experts. One of my favorite examples is the Black Monday stock market crash of 1987. Experts have long ascribed it to nebulous factors like the initiation of computer trading of stocks and so on - but a satisfactory mechanistic cause for Black Monday remains mysterious to  this day. That is unless one examines it in the context of the chart. If one does this, it stands out like sore thumb that Black Monday occurred just after an oil shock precipitated by a collapse in arrangements between OPEC members in 1986. Thus, just like all recessions and equity market crashes of the last 50 years, Black Monday, was preceded by an oil shock. I put little stock in anthropocentric factors such as monetary policy and so on. Ultimately, my view is that explanations are to be found in nature in general and physics in particular. Apologies for being long winded - but hopefully my point and outlook is now crystal clear. Best wishes, Tom

Julian Silk's picture
Julian Silk on Apr 13, 2022

Dear Tom,

Understood.  The economists have been on this for a long time.  You want to see the EconBrowser blog and especially the work of James Hamilton at UCSD. 

I was watching Black Friday of 1987 in New York, and cackling.  One of the things that support the argument is that oil prices are widely reported, so they are a useful indicator, while monetary policy is difficult to disentangle.  If the Federal Reserve raises interest rates 50 basis point (0.5%) instead of 25, stock prices will certainly fall, because it makes an alternative asset more attractive.  But to know how much they would fall, you have to know the market elasticity of substitution at given market incomes and a lot of things related to financial assets, and those are difficult to observe accurately in real time.  So while I agree that oil price shocks can cause recessions, I still hold that human behavior, including monetary and fiscal policy, are very highly relevant.

Tom Therramus's picture
Tom Therramus on Jul 3, 2022

Hi Julian, Thanks again for taking the time to think about my post and respond to it. Humbled by the mention of Hamilton. I think he's on it. He corresponded with me on my 2010 article at - - interested in the derivative based approach I was taking to analysis of oil price volatility. I also have to say that his 2011 publication on the relationship between the metronome-like timing of oil shocks and recessions ( may have been influenced by a chart in an earlier 2009 post at the ( - Figure 8). Appreciate and respect your perspective on Black Monday - a first hand account and experience is hard to beat. On human influence on economics - I can't deny it does not have a part - however, I do think the data suggests that we tend to over-estimate our own importance. Best wishes, Tom

Tom Therramus's picture
Thank Tom for the Post!
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